Public Utility Commission Establishes the ERCOT Reliability Standard

by Rick Arnett

The Public Utility Commission of Texas (“PUC”), after a year and a half of deliberation, adopted the Electric Reliability Council of Texas (“ERCOT”) reliability standard. ERCOT will now simulate market conditions—such as available power supply, weatherization efforts, and power demand—to determine whether the Texas grid meets the standard. Modeling results that meet the standard suggest market conditions that, theoretically, produce a reliable grid.

The reliability standard is one of many Winter Storm Uri related regulatory efforts, and the Steering Committee of Cities Served by Oncor and Texas Coalition for Affordable Power (collectively, the “Cities”) have been active throughout the rulemaking process. Cities consistently questioned whether the rulemaking establishes an unattainable standard, driven by modeling assumptions, with unproven benefits and uncertain costs to consumers. PUC, in large part, heeded these concerns and established a less rigorous and more flexible standard than originally contemplated. Texas consumers should achieve savings as a result.

PUC Establishes a “Three-Legged” Standard
ERCOT recommended a reliability standard based on three criteria: (1) frequency—the expected number of Loss of Load Events (“LOLE”), or blackout events, in days per ten years; (2) magnitude—the maximum hourly gigawatt shed during a LOLE; and (3) duration—the maximum hours of a single LOLE. On August 29, 2024, PUC approved this framework, establishing the first “three-legged” reliability standard in the country. Most, if not all, jurisdictions outside ERCOT utilize a single metric standard based on the frequency criteria.

Cities Urged Flexibility—Generators Urged a Mandatory and Costly Standard
Throughout the rulemaking, Cities questioned whether the contemplated standard is attainable. Indeed, the proposed standard’s effective frequency—the frequency threshold necessary to meet the magnitude target, and thus necessary to meet the entire standard—is one outage every twenty-seven years, or 0.037 LOLE. This is over 100% more exacting than the industry standard reliability target. As such, Cities urged PUC to raise “exceedance tolerances,” or embedded values that allow the grid to exceed the magnitude threshold under certain circumstances, from 0.25% to a 1.0% floor. Greater tolerances would counteract an overly prescriptive standard and thus reduce system—and consumer—electricity costs. Additionally, Cities argued PUC should refrain from repeatedly adjusting the market to meet a mandatory standard. Regulatory vacillation would impose undue cost and undermine market stability.

Generators argued otherwise. NRG Energy, Inc. asserted that the Public Utility Regulatory Act (“PURA”) requires a mandatory reliability standard. Thus, if the ERCOT grid fails to meet the reliability standard, PUC must “trigger” market changes—market changes that would inevitably inflate market costs. Generators, moreover, argued PUC should codify more stringent exceedance tolerances. This would establish a more rigorous standard, and thus raise resulting market costs.

PUC Heeds Cities’ Concerns, Adopts a Relaxed Standard
The final rule set exceedance tolerances at 1.0% and rejected Generators’ call for a mandatory standard. PUC Staff echoed Cities’ concerns nearly verbatim, explaining that a 1.0% exceedance tolerance “more appropriately balances” reliability with “expensive outcomes driven solely by modeling assumptions.¹” If ERCOT fails to meet the standard, moreover, PUC Staff recommended ERCOT assessments—with opportunities for stakeholder comment—rather than mandatory market “triggers.” PUCers agreed on both counts and adopted 1.0% exceedance tolerances and rejected calls for a mandatory standard.

The final rule is a critical policy outcome. First, it shields Cities and ERCOT consumers from an overly prescriptive standard and inflated market costs. Second, it ensures Cities—and all other stakeholders—have an opportunity to review and contest future market changes proposed to meet the reliability standard.

¹Reliability Standard for the ERCOT Region, Project No. 54584, Order Adopting New
§ 25.508 (Sept. 2024).

Rick Arnett is an Associate in the Firm’s Energy and Utility Practice Group. If you have questions or would like additional information related to this article or other matters, contact Rick at 512.322.5855 or rarnett@lglawfirm.com.